Transcript Adam Smith - cloudfront.net

Why
1. Why do you think Dr. X is trying to
find a cure for AIDS?
2. Why do you think athletes want to
win the league MVP?
3. Why do airplane pilots want to
always land safely?
Adam Smith
• Smith argued the world
would be an orderly,
better place, with
increased prosperity if
people followed their
own self interests.
• “It is not from the benevolence of the
butcher, or the baker, that we expect our
dinner, but from their self-love”
Smith thought social harmony
would result without any
government direction “as if by an
invisible hand.”
He defended the idea
of a free economy in
his book The Wealth
of Nations.
Another way to say a free economy is
laissez faire: The idea that
government should not interfere
with or regulate industries and
businesses.
http://www.youtube.com/wa
tch?v=ulyVXa-u4wE
Great invisible hand cartoon
The opposite is government
intervention
Examples
• Sales tax
• Minimum wage
• Maximum work hours
• Safe Working conditions
• Sick and vacation pay
• Disability pay
• Product safety
Examples of government intervention with
regards to international trade (trade barriers):
1. Tariffs - high taxes on imported goods
2. Quotas: limit the quantity of imported goods
3. Tough government regulations
Smith thought the only legitimate functions of
the state were:
• National defense
• Establish property rights
• Establish legal system
• Promote free trade
• Invest in trade-promoting infrastructure
Adam Smith is considered the father
of Capitalism
Capitalism: An economic system
based on private ownership and on
the investment of money in
business ventures in order to make
a profit. Also known as the freeenterprise system or market
economy
The aims of a market economy
are to produce the best goods
at the lowest price
Capitalist often oppose
government efforts to help poor
workers because it lowers
profits.
Capitalism’s five main features are:
1. Private property: resources and capital are
owned by people and private institutions, not
the government
2. Self-interest: each economic
unit (person or business)
attempts to do what is best for
itself
3. Competition: a large number of
independent buyers and sellers is
best
Dunk Video
4. Reliance on price (economists call
this the market): if prices go up, the
producer makes more and if the prices
go down, the consumer buys more
(the Law of Supply and Demand)
5. Limited government (laissez faire
economics): pure capitalism is
seen as self-regulating; only broad
legal limits should be established
by the government
Free trade dvd
http://www.youtube.com/watch?v=EBifN69gc
KY
Boring
http://www.youtube.com/watch?v=oLbfAfCV
G_4&feature=relmfu
cartoon